A blog by Americans for Financial Reform

Main menu

Monthly Archives: June 2015

The CFPB recently brought legal action against a number of companies, including Universal Debt & Payment Solutions, for defrauding consumers by using threats, deception, and harassment to collect “phantom debts” that the consumers did not owe to the collectors or, in most instances, to anyone else. In this instance, consumers collectively paid millions of dollars to the debt collectors after being subject to illegal threats and false statements, including threats of arrest or wage garnishment. In some cases, the phony collectors took money out of consumers’ accounts without any authorization at all.

In a noteworthy move, the CFPB’s complaint named not only the debt collectors, but also the various companies alleged to have been “service providers” to the debt collectors—those serving as payment processors, without whom the scammers could not have collected the consumer’s debit and credit card payments. With this enforcement, the CFPB is insisting that payment processors—and not just the companies directly dealing with consumers—are also subject to its enforcement authority under the Consumer Financial Protection Act (CFPA).

The Bureau’s complaint charges that while the debt collectors in this case were guilty of threatening and intimidating consumers over debts that were falsely claimed to be owed, the payment processors were also in the wrong for their role in facilitating the debt collectors’ actions in this scheme—ignoring clear signs that the collectors were committing fraud.

In one example that the complaint highlights, two payment processors, Global Payments and Pathfinder, ignored extremely high chargeback rates. (‘Chargebacks’ occur after a consumer successfully disputes a charge as unauthorized or otherwise improper and the payment is reversed.) Chargebacks are rare in legitimate card transactions, and every chargeback requires an inquiry. The major debt collection company in this suit as well as an affiliate had chargeback rates of close to 30% in some months, rates that should have prompted termination of the processing agreement. Another payment processor, EMS, ignored complaints from consumers who reported unauthorized payments taken out of their accounts and fraud detection reports that flagged the collectors because there was “[n]othing found to confirm the existence of the business.”

The CFPB’s actions in this case are in some ways similar to steps the Department of Justice has taken though Operation Choke Point, where the DOJ is holding banks responsible for processing payments despite evidence of fraud or other illegal activity. All three DOJ cases filed as part of Operation Choke Point are instances – like this one – in which the banks or payment processors in question knowingly facilitated illegal activity that did serious harm to consumers. See this new fact sheet from NCLC outlining the three cases brought by the Department of Justice, against CommerceWest Bank, Plaza Bank, and Four Oaks Bank & Trust. Banks and payment processors that comply with their responsibilities to know their customers and look out for signs of fraud, as most do, play important roles in safeguarding consumers. Actions by the CFPB and DOJ against banks and payment processors who enable fraud are critical to cut off fraudsters from access to the payment system.

Today, the House Appropriations Committee, at the behest of both Wall Street and predatory lenders seeking to run amok, will vote to eliminate the CFPB’s independence from the politicized appropriations process. The bill will also further hamstring the SEC, a federal financial agency that struggles to protect small investors since its funding is already subject to the committee’s whims. You can watch the debacle here at 11am ET. Wall Streeters and payday lenders will be lighting their cigars with $100 bills– chump change compared to the $1.9 million dollars/day ($1.4 billion total in this election cycle) they’ve been spending to roll back Wall Street reform.

You can read the opposition letter from Americans for Financial Reform, PIRG, Consumer Federation of America, the NAACP and other leading groups here (excerpt):

“Changing the CFPB’s independent funding would leave the CFPB more vulnerable than the Federal Reserve, the OCC, and the FDIC to industry influence, once again treating consumer financial protection as a less important matter. It would give Wall Street and the worst elements of the financial services industry endless lobbying opportunities to deny the CFPB the funding to do its job if and when the regulator took action that a sector of the industry did not like.”

Meanwhile, over at the CFPB, important work to protect consumers, including servicemembers, from unfair and predatory financial practices continues. Some recent highlights include:

But, expect further attacks on the CFPB in both the Senate and the House. Recently, freshman Senator David Perdue (GA) escalated his own over-the-top attack, alleging that the bureau was “a rogue agency that dishes out malicious financial policy” and filing a bill similarly eliminating the CFPB’s independence. (By the way, the so-called US Consumer Coalition” listed in the Perdue release is a front group for some financial industry that won’t disclose its backing.)

The American public supports the CFPB, overwhelmingly and on a bi-partisan basis. After all, the idea of the CFPB needs no defense, only more defenders. Congress needs to start listening to consumers, instead of special interests. Why should they be allowed to run amok, even as our economy struggles to recover from the recession caused by the 2008 financial collapse triggered by “rogue” financial practices?

Categories

Meta

This blog is maintained by AFR as a forum for ongoing news and commentary about the fight for effective financial reform. Blog posts represent the opinions of their authors / posters, and do not necessarily represent the views of the AFR coalition or coalition members.